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Medical centres are unlikely to get clarity on the issue until there is further litigation, the firm believes.
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GP clinics left with uncertainty on payroll tax, says KPMG
22 September 2023
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Recent rulings by the NSW and Victorian governments on how payroll tax applies to medical centres and GPs leaves plenty of room for doubt, KPMG says, and further litigation may be required.
An earlier ruling by the Queensland Revenue Office this week in an attempt to bring clarity also failed to decisively resolve the issue, according to William Buck.
The accounting firm said the revised ruling was substantially similar to the original with some additional commentary and examples of scenarios to illustrate what would and would not be subject to payroll tax.
“The examples provided clarify that the Revenue Office considers that where a medical practice collects patient fees on behalf of a doctor, whether these fees are assigned via Medicare or paid directly to the practice, and then fees are distributed to the practitioner, that these arrangements will see the payment made to the doctor be treated as deemed wages and therefore subject to payroll tax,” said William Buck in a recent Payroll Tax Circular.
“However, in paragraphs 56 to 61 of the ruling, the examples and commentary provided confirm the position that where payments are made directly to the practitioner, whether directly by the patient or by the patient assigning their Medicare benefit to the practitioner, these payments will not be considered deemed wages for payroll tax.
“Therefore, although there may be a relevant contract in place, these payments will fall outside the scope of payroll tax and will not be included in any payroll tax calculations.”
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Other states, including South Australia but with the exception of Victoria, have issued various amnesties on the issue while Western Australia has confirmed it does not intend to make medical centres liable for payroll tax.
KPMG said despite the amnesties, the state revenue offices of NSW, Victoria, South Australia and the ACT appeared aligned on their position that payroll tax would generally be expected to apply where a medical centre engaged a practitioner to practice from the medical centre or held out to the public that it provided patients with access to medical services of a practitioner unless an exemption applied.
“The rulings from the revenue offices are far-reaching and potentially apply to standard arrangements between medical centres and GPs which commonly involve medical centres being engaged by GPs to provide administrative services, clerical and professional staff, rooms and equipment necessary for the GP to provide medical services to patients.”
KPMG partner Keith Swan said it was unclear at this stage exactly which medical centre operators would be captured under the rulings.
“In my experience, many medical centre operators don’t engage doctors or GPs to provide services on their behalf,” he said.
“In fact, there are regulatory reasons why medical centres generally aren’t in a position to be able to provide medical services to patients and that’s because of that regulatory hurdle.”
“So it’s difficult to see how the understanding of the revenue offices would work in practice. To the contrary, most arrangements we’ve seen involve medical centres being engaged by GPs to provide the administrative service and the room and equipment in order for the GP or doctor to be able to provide medical services to patients.”
Mr Swan said a closer reading of the rulings suggested that the revenue authorities would place greater weight on the substance of an arrangement rather than the terms of a written agreement between the medical centres and the doctors.
“So when you consider the way that GPs usually run their own practice, there’s lots of aspects of those arrangements which mean that GPs are effectively running their own independent business in providing medical services to patients rather than simply acting on behalf of a medical centre,” he said.
“The challenge, of course, is that this is not really acknowledged in the revenue rulings.”
“So we’ve been left with a level of uncertainty regarding an approach which doesn’t appear to be based on a strict reading of the legal contracts between the parties but rather the revenue office’s perception of the substance of the arrangement once they’ve undertaken a review or audit.”
A court looking at these types of arrangements, on the other hand, would be more likely to place greater weight on the actual legal agreement, said Mr Swan.
“So there’s some uncertainty in terms of how much weight you place on the legal agreement versus the substance of the arrangement.”
Mr Swan said accountants and medical centres were unlikely to get further clarity on the issue until there is further litigation on this topic.
“It seems to be one of those arguments that hasn’t really been properly ventilated in a court,” he said. “It will be interesting to see how that plays out given the various amnesties that now exist in some states and territories.”
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